Government Company

A government company is established under The Companies Act, 2013 and is registered and governed by that Act. Such companies are set up for purely business purposes and genuinely compete with private sector companies.

Definition (Section 2(45), Companies Act 2013)

• A government company is any company in which not less than 51 per cent of the paid-up capital is held by the central government, a state government, or partly by the central government and partly by one or more state governments — and it includes a company that is a subsidiary of a government company.

Key points on its formation and control

• Under the 2013 Act the definition of a company does not change; all provisions of the Act apply to government companies unless otherwise specified.
• It may be formed as a private limited or a public limited company, with certain provisions applying to the appointment and retirement of directors and other managerial personnel.
• The government controls the paid-up share capital; the shares are purchased in the name of the President of India.
• Because the government is the major shareholder and controls the management, these are called government companies.

Features

• Created under company law: formed under the Companies Act, 2013 (or an earlier company law).
• Can sue and be sued: it can file a suit against a third party in a court of law and be sued in turn.
• Contracts and property: it can enter into contracts and acquire property in its own name.
• Managed like any public company: its management is regulated by the Companies Act, like any other public limited company.
• Own service rules: employees are appointed under the rules in the company's Memorandum and Articles of Association — the main documents stating the company's objects, rules and regulations.
• Special audit arrangement: these companies are exempted from ordinary government accounting/audit procedures; instead an auditor is appointed by the Central Government and the Annual Report is presented in Parliament or the State Legislature.
• Sources of funds: it obtains funds from government shareholdings and private shareholders, and is also permitted to raise funds from the capital market.

Merits

• No separate Act needed: it can be set up simply by meeting the requirements of the Companies Act — a separate Act of Parliament is not required.
• Separate legal entity: it has an identity distinct from the government.
• Managerial autonomy: it enjoys autonomy in management decisions and acts according to business prudence.
• Checks unhealthy practices: by supplying goods and services at reasonable prices it can control the market and curb unhealthy business practices.

Limitations …